Thursday, December 27, 2012

Yes, O Dearly Beloved, it is time. That season of the year has arrived in which Your Humble and Ever-Attentive Opinioneer attempts to survey which among his meager works has earned the attention, approbation, and/or opprobrium of the masses in Anno Domini Two Thousand and Twelve. My tools, as usual, consist simply of the page view rankings of posts authored this year as they have been recorded in Google Analytics. This data is necessarily incomplete and potentially unreliable, as it misses the actual eyeballs harvested by each respective post from the far greater numbers of people who simply visited the home page of this humble opinion emporium. But hey, it’s good enough for government work.

My feelings do not enter into this ranking, as I defer, as is my wont, to my Beloved Audience’s merest whim. Three hundred and sixty-four point two five days of the year, I convey my own opinions here. Today is your day.

Listed in order of popularity, as determined by you, here are this year’s greatest hits. Enjoy.

THE CANON, 2012 Edition

1) The Rules (November) — An excessively popular semi-tongue-in-cheek list of the rules for proper behavior in corporate finance and M&A. I will let you clever readers figure out which bits are tongue-in-cheek and which are only semi. No peeking.

2) Can’t Buy Me Love (April) — In which I explain why the great unwashed should not envy the reportedly stratospheric pay of investment bankers, nor should the eager young flock to my industry in search of endless wealth. I realize that few of the latter will listen, but perhaps I will save one or two as they come barreling through the rye.

3) Goodwill Hunting (November) — A prominent financial journalist uses the incident of Hewlett Packard’s writedown of its investment in Autonomy to embarrass himself publicly with the depth and breadth of his ignorance concerning firm valuation and the rules of public accounting. I, being of sound mind and generous heart, take mild exception and attempt to convey what are quaintly known in journalism as “the facts” to any and all individuals who might actually like to know them. Illustrated with one of Your Dedicated Bloggist’s favorite Frank Cotham cartoons.

4) The Root of Some Evil (January) — A respected academic named after a Harry Potter character attempts to tie senior financial executive pay to performance and, ultimately, link excess pay to the onset of the financial crisis. After engaging in deep breathing exercises and ingesting copious quantities of legal mood stabilization substances to reduce his skyrocketing blood pressure, your Tireless Servant and Guide to All Things Financial patiently explains why said academic is full of stinky goose shit. In summary, like most academics observing my industry from the outside, this scribbler would have been far better served actually learning how my industry works, rather than trotting out tired old shibboleths from the leafy groves of lazydeme.

5) The Rape of Persephone (January) — A rather lengthy disquisition on the practice of private equity investment, spurred by the extensive media attention triggered by the Presidential candidacy of a certain ex-Bain Capital poohbah, long since forgotten. I counter various pundits’ facile misrepresentations and misunderstandings of the financial sponsor business, and roast a few canards to boot. Short summary: private equity is not Evil Personified. It’s okay; I understand your shock.

6) All’s Fair (January) — Ex-investment banker William Cohan launches a scurrilous political attack against ex-private equity boss Mitt Romney. I respond by detailing the process of buying and selling companies and the nature of the negotiations involved. As you might suspect, the M&A arena is characterized by sharp elbows and sharp practices, pragmatically employed in the service of larger goals. Just like politics. Unsurprisingly, Mr. Cohan does not come off well.

7) Three’s a Crowd (March) — Wherein I use the very public J’accuse by Goldman Sachs apostate Greg Smith and a fellow traveler to delve into the structural and cultural workings of the investment banking industry. I describe the core conflict of interest or tension at the heart of my business and explain its origin as the ineluctable outgrowth of our attempts to serve the conflicting interests of different sets of clients. I also explain how the introduction of public shareholders permanently upset this tenuous balance for the worse. Yes, you heard me correctly: it’s the shareholders’ goddamn fault.

8) A Good Offense (April) — Was the famous beaching of J.P. Morgan’s “London Whale” an example of hedging gone awry or rank speculation undone? I examine the rotting carcass from several points of view and draw a few measured conclusions. Gratuitous World War II tank destroyer analogy included gratis.

9) Chesterton’s Fence (March) — Wherein I resurrect a hoary old chestnut from professional curmudgeon and Dead White Male G.K. Chesterton to remind us that professed reformers are wise to examine the history and reasoning behind objectionable human institutions before they decide to tear them down. While this was perhaps interpreted by most readers (and intended by Mr. Chesterton) as a defense against change, the rule offers a clearly defensible roadmap to reform: if upon examination we determine an institution was established for bad reasons, or reasons which no longer apply, then we are entirely justified in removing it or replacing it with something better. When the stakes are high, tradition should not survive simply because it is tradition. Neither should change happen simply for a change. Corollary: Do not look for simple answers at this site. I do not supply them.

10) Too Much Is Never Enough (October) — And, finally, a piece in which I explain the dirty little secret of the private equity industry: that, when they have incentives to overinvest or invest poorly—say, for example, when they risk losing money, prestige, and potential future earnings if they don’t invest the excess cash currently burning a hole in their industry’s pocket—these purported paragons of fiduciary probity can be just as self-serving as any venal schmoe. This conundrum neatly illustrates two general points worth remembering: 1) economic rationality or not, almost every human endeavor is riddled with conflicts of interest, and 2)

the primary mission of any institution, once it becomes large enough, is the perpetuation and survival of the institution itself.

The private equity industry, as an aside, has become very, very large.

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Well, here’s hoping 2013 will be a marked improvement over 2012, in every dimension. This year has been a total bust.

Cheerio, children.1

1 Sorry, no clever footnotes this year. I’m fresh out. But hey, you get what you pay for, you know.